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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (16252)	1/22/2003 5:27:57 AM
From: Dale Baker	Respond to of 78701

Agreed, without GAAP-standards reporting you are taking chances. I keep my positions in non-fully-reporting companies very, very small. ATS is a recent example at 1.5% of my portfolio.

To: Don Earl who wrote (16252)	1/24/2003 4:10:45 PM
From: Don Earl	Read Replies (2) \| Respond to of 78701

I've been kicking around some thoughts on VTS today, but haven't convinced myself it's time to start a position. It looks cheap, but I haven't been following the sector enough in the past year to stay on top of market conditions. Seismic is very much a cyclical play, but catching the bottoms and tops can be fairly profitable. From what I've seen in the past, seismic tends to trail O&G prices by around 6-9 months. It looks cheap at 1/2 book, but most of book is multi client library data, which IMO, is a very questionable asset due to depreciation methods. Library data is depreciated using the income forecast method, which means any data that isn't selling isn't getting depreciated either. The downside to income forecast is data can sit on the shelf for years as an asset before it results in "one time" charges. The business is also very capital intensive as the data has to be replaced as it gets too old to sell. Depreciation never seems to quite catch up with capex, so the usual pattern is increasing debt levels over a period of time. The company has about $210 million in debt due this year, but appears to have financing lined up to replace it. If the consensus is anywhere near being close, the stock is trading around 11 times forward earnings. The biggest problem with playing the sector is it tends to move more on momentum market sentiment, when the perception is oil plays are "hot", than any real underlying fundamental considerations. At present, I'm leaning toward the idea that options might be the better way to play the stock if I decide to take a position. August 10s are around $1.20 and January 04 10s are around $1.65. That's pretty reasonable for $2 out of the money calls on a fairly volatile stock 7 or 11 months out. The trick with cheap options is the premium tends to shrink to almost nothing, regardless of time value, once they're deeper in the money, to the point exercising the options is almost the same as trading them. I'll probably be looking at the January contracts if the market continues to sell off enough to get them around $1.40. I'm more or less thinking out loud at this point. I need to do some homework over the weekend to catch up on the sector, but would be interested in any comments, suggestions or ideas on this one. My current reasoning is to treat the calls as a hedge to limit absolute dollar exposure to the downside, while having enough time to let the options work toward a shift in sentiment in O&G plays. Thoughts anyone?